Novel Solution for Saving Afghanistan: Tax the Expats

Here’s an idea that will provide desperately needed revenue for the government of Afghanistan, and help win the support of its people: Put a tax on foreign aid.

Too bad it will never happen.

Writing today in the New York Times, Peter Bergen and Sameer Lalwani note that a hefty chunk of the billions in foreign aid flowing to Afghanistan is quickly repatriated to donor countries in the form of consultant salaries and overhead costs. Ordinary Afghans can see this army of expatriate development consultants cruising around in SUVs but often see little tangible benefit from the arrival of Development Inc.

Bergen and Lalwani propose a novel scheme for generating revenue in Afghanistan: Awarding aid contracts on the condition that aid providers pay tax in Afghanistan. “America and its European allies could easily give up claims on taxes from their citizens working in Afghanistan and instead condition contracts so that the workers and the companies that employ them pay Afghan taxes,” they write. “The loss in tax revenue suffered by Western countries would be trivial compared to the good will this would engender among Afghans. Right now the government’s tax revenues total a paltry $300 million. Taxing foreign technical assistance alone — an estimated $1.6 billion annually — could double this revenue.”

That point — the lack of government revenue in Afghanistan — gets to the heart of the problem. The exit strategy in Afghanistan hinges in large part on building up Afghan national security forces. But unless Afghanistan’s central government can actually afford to pay and sustain these forces, the whole enterprise is in doubt. The United States has spent $16.5 billion on training and equipping Afghan security forces thus far, and they are nowhere near self-sufficient.

But don’t expect foreign aid workers and companies to embrace this idea. Development Inc. is quick to reject criticism — hey, we’re busy saving the world here — and the quasi-colonial lifestyle is considered part of the compensation package. (This solution proposed by Bergen and Lalwani would also create a precedent for other countries to grab a share of aid.) So again: If anyone surrenders their tax-free status in Afghanistan, I’ll eat my hat.

And that’s too bad. Gen. Stanley McChrystal — who just dodged a summons to appear before Congress — has made it clear that if the military wants to win in Afghanistan, it needs to fight differently. That has a corollary: If development assistance is to work in Afghanistan, it needs to be delivered differently.